Tuesday, April 22, 2008
Chian Cut Short Term Foreign Currency Loans to Reduce Hot Money
China ordered foreign and localbanks to rein in overseas borrowings in a bid to curbspeculative capital inflows, a document obtained by BloombergNews showed. Overseas loans with a maturity of less than a year will belimited to $12.7 billion by June for 23 foreign banks and to $8billion for 19 local banks, the State Administration of ForeignExchange, or SAFE, document showed. That's a reduction of 15percent for global lenders from the March-end levels, and 5percent for domestic lenders, said Xu Hanfei, an analyst atIndustrial Bank Co. in Shanghai. The new quotas are validthrough March 31, 2009. China's foreign-exchange reserves rose to a record $1.68trillion at the end of March, the central bank said on April 11,fueling concerns that inflows of speculative capital will hamperthe government's efforts to damp inflation close to the fastestin 11 years. ``Growth in foreign-exchange lending exceeded that of yuanloans from last year,'' said Li Huiyong, a foreign-exchange analyst at Shenyin Wanguo Research and Consulting Co. inShanghai. ``Short-term lending is one of the channels forinflows of so-called hot-money.'' A SAFE official said he was aware of the document, butwouldn't make further comments. Premier Wen Jiabao said last month that the government'stop priorities this year are curbing inflation and preventingeconomic overheating. The central bank has ordered lenders toset aside larger reserves three times this year, following sixinterest-rate increases in 2007. Inflation surged to 8.3 percentin March, little changed from 8.7 percent in March. ``Investors borrow dollars from banks and convert them intothe Chinese yuan,'' said Wang Qian, economist at JPMorgan Chase& Co. in Hong Kong. ``Even a simple deposit of the currencywould give them a nice return on investment.'' SAFE said in March last year that it would cut local banks'short-term foreign debt quotas to 30 percent of their 2006levels by March 2008 to stem foreign-currency inflows. Overseasfinancial institutions' short-term foreign debt quotas were cut``by a relatively small margin'' because of their limitedfunding sources, it said then, without giving details. Outstanding foreign-currency loans surged 56.9 percent froma year earlier to $268.8 billion at the end of March, accordingto central bank data. Outstanding short-term debt increased19.85 percent to $220 billion at the end of 2007 from a yearearlier, accounting for 58.9 percent of the total foreign debt, according to government data.